GSK’s China crisis just won’t go away

GlaxoSmithKline (GSK) said this week that it had fired some of its employees in China for corruption way back in 2001, well ahead of the allegations that surfaced last year.

A report in the Financial Times that GSK fired 30 staff for bribing Chinese officials – including the head of its vaccines unit – was confirmed by the drugmaker yesterday, which said it believed “appropriate investigation and action was taken at the time”.

The company’s head in China during that period – Paul Carter – took the decision to let the staff go after an investigation by PricewaterhouseCoopers (PwC).

It is notable that the PwC team included among its ranks Peter Humphrey, the corporate risk investigator now facing charges in China for breaking laws on the purchase of personal information whilst carrying out investigations for GSK.

The 2001 events pale into insignificance in light of the 2013 allegations that the company operated a complex system of bribes that funnelled 3 billion yuan (£285 million) to doctors and health officials to encourage use of its products. However, it does provide a backdrop to the current scandal that suggests the company has been trying to deal with corruption at its Chinese operations for some time.

The steady stream of corruption-related news reports in China – and other countries such as Poland, Iraq, Jordan and Lebanon – comes as financial authorities in the UK and the US have started their own investigations into the multinational’s commercial practices, as anti-corruption laws in both countries mean the company is vulnerable to prosecution even if crimes were committed only overseas.

In the US, the Department of Justice (DoJ) has already said it would extend its probe to include the events in 2001.

The implications of the latest revelations are, however, hard to gauge. One the one hand, the 2001 events could point to a systemic corruption problem at the firm, while on the other it could provide evidence for the ‘zero tolerance’ approach to corruption GSK has been espousing in multiple statements released since the Chinese scandal first hit the headlines a year ago.

GSK has introduced a number of measures in recent months to try to remove incentives for corrupt practices, including replacing sales targets for its reps with rewards based on technical knowledge and service quality, as well as using in-house doctors and scientists rather than external speakers to present on its products.